Wachovia Preens but Fails to Impress

So Wachovia (WB Quote) has polished up its balance sheet and dropped a few extra pounds as it pretties itself for a possible merger with First Union (FTU Quote). But the bank's less-than-stellar growth shows why it's been placed on the auction block in the first place.

Wachovia posted second-quarter profits of $1.22 a share Tuesday morning, 2 cents ahead of the Thomson Financial/First Call consensus and a substantial 86% above earnings in the same period last year. But don't get too excited. Aggressive credit management and outsize security gains have helped prop up this quarter's results. Meanwhile, year-over-year comparisons were easy: This time last year, Wachovia was struggling as it faced up to some serious credit issues.

Popping Up

"I don't really think year over year is a fair comparison, since they bolstered their loan-loss provision significantly last year," says Katrina Blecher, banks analyst at Sandler O'Neill. Wachovia shelled out a hefty $200 million to boost its reserve for loan losses in the second quarter of 2000, which cut heavily into profits. Factoring in that provision, Wachovia's net interest income popped nearly 20% this year. But excluding the drag on last year's earnings, it rose a paltry 1.8%. ...